HMO – “Landlords Guide” What You Need to Know

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HMOs - What do I need to know? A HMO is "House of Multiple Occupation". A HMO can be extremely profitable but there are many Pros and Cons to consider before you take the plunge.  Lets take a look at what makes a HMO and what you need to know.

Benjamin Howarth

Estate Agent

First things first. Lets look at what constitutes a HMO 

  • Shared Houses

  • Bedsits

  • Lodgings

  • Hostels

  • Blocks of converted flats

  • Emergency/Temporary Accommodation

  • Accommodation for employees/workers

  • Individual shared/Self contained flats

Now just because your property falls withing the above list doesn't always mean it needs specialist licensing or conditions. The most important point to make is that although a property may fall within the definition of a HMO, it does not automatically follow that it must be licensed as such. There is a wider definition of what exactly a HMO is which this section deals with, and a narrower definition of licensable HMOs. However, before you consider whether a property can acquire a license, it must be an HMO in the first place. 

 

Which properties require a license?

Under new legislation contained in the Housing Act (2004) there is a new definition of what 'House in Multiple Occupation' is, the main change is that shared houses (such as student shared houses) have now become HMOs. Although special legislation applies to properties which are HMO's, not all HMO's have to be licensed. Only larger HMOs (3 stories or more with 5 [or more] occupants) require a Mandatory HMO Licence. Local authorities have the power to impose 'Additional HMO Licensing' on other types of HMO's. As of yet there are no areas designated for additional HMO licensing anywhere in the country. This section is designed to help you decide whether or not a property is a HMO, there is a separate section dealing with those HMOs which require Mandatory HMO Licences and those where Additional HMO Licensing regulation applies. There are also provisions for those properties which were registered under HMO registration schemes under the old legislation

What about flats?

Usually a self contained flat located within a block of flats does not need a special license. A good rule of thumb is that if the flat has its own council tax bill and the tenants name is on the bill it doesn't require a special license. But it is always worth checking with your local authority just to be on the safe side. 

What about a Student House?

If the house is shared by multiple students and they share amenities such as a Lounge, Kitchen, and Bathroom then it will usually fall under the category of a HMO (requiring a license). These can be obtained relatively easily on the Gov Website. 

What are the Pros and Cons Of a HMO? 

There are a number of positive features to being the landlord of a HMO and there are also a few negatives. Managing a HMO is definately a more hands on job than a standard Assured Shorthold Tenancy. 

Money house

PROS

  • Higher rental yield (Can generate up to 4x standard rental)

  • Void periods are more manageable (If one person leaves the other tenants are still paying)

  • Tax advantages (More deductibles from a HMO)

  • Increased demand for flexible accommodation  

CONS

  • May require a specialist license 

  • May be harder to obtain a mortgage (especially for new landlords)

  • Re-sale value may be lower (as the property is limited to a single use)

  • Wear and tear on fittings and fixtures will be higher and may result in more repairs being needed  

What about tenants?

Like any rental property you are going to need tenants. Finding the right tenants is crucial and is best left to an experienced Letting Agent. However if you want to have a go at finding tenants yourself make sure that each potential tenant has had a full Credit check and Identity check. Renting a property to an illegal immigrant or someone with a false identity can land you in hot water if you haven't done the proper checks. 

 

Another thing to consider is the high turnover of tenants. Unlike a standard AST that lasts for 6 months or more you will be using a 3 month AST for most tenants. If you have 4 or 5 rooms you may find yourself having to replace a tenant every other week once your first 3 month period is up. A Letting agent or Management company will be able to assist in keeping your property fully occupied with quality tenants (QuickBricksOnline offers a Tenant Finder Service for the equivalent of one months rent).   

If you would like more Information about HMO or any other property See QUICKBRICKSONLINE 

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